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2022 (5) TMI 853 - AT - Income TaxUnexplained cash credit - loans are taken from close family members and friends - CIT(A) deleted the additions being loan taken from five parties and confirmed addition being amount of loan taken from M/s.Rich Gold Hardware - HELD THAT - In this case, as regards loan taken from five parties, what we noticed from the order of the Ld.CIT(A) is that the assessee has proved identity of parties and genuineness of transactions. The assessee had also proved creditworthiness of the parties by filing their ITR copies for the relevant assessment years, which is part of assessment records. Once, the assessee has discharged his onus by filing all possible evidences, then the onus shifts to the AO to prove otherwise. In this case, the AO only on the basis of minimum income declared by the creditors, has drawn an adverse inference against the assessee, even though, the assessee has discharged its onus cast upon him as per Sec.68 of the Act. This legal principle is supported by plethora of judicial precedents, including the decision of the Hon ble Supreme Court in the case of CIT v. Lovely Exports Private Limited 2008 (1) TMI 575 - SC ORDER wherein, it has been held that once names of creditors are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but some received from them cannot regard as undisclosed income of the assessee. This legal position further supported by the decision of CIT v. Steller Investment Ltd. . 2000 (7) TMI 76 - SC ORDER The sum and substance of ratio laid down by various decisions of the Hon ble Supreme Court and High Courts is that once assessee discharged its burden by filing various evidences including confirmation letters from the parties, their bank statements and ITR field for the relevant assessment years, onus cast upon the assessee shifts to the Revenue and the AO should bring some evidences to prove that sum credited in the books of accounts of the assessee is undisclosed income. Further, once name and address, PAN of creditors is furnished to the AO, then the Department is free to re-open the individual assessment of creditors, but some received from the parties cannot be regarded as unexplained credit u/s.68 of the Act. In this case, the assessee has filed all details to prove identity of the loan creditors genuineness of transactions and creditworthiness of the parties. In fact, the loans are taken from close family members and friends. It is not a case of the AO that the assessee had taken loans from certain unknown people whose identity is in doubtful. AO is completely erred in making additions towards loan taken from above parties as unexplained credit u/s.68 - CIT(A) after considering relevant facts has rightly deleted the additions made by the AO. Hence, we are inclined to uphold the findings of the Ld.CIT(A) and dismiss the appeal filed by the Revenue.
Issues:
Identification of loan creditors, genuineness of transactions, creditworthiness of parties under section 68 of the Income Tax Act. Analysis: Issue 1: Identification of Loan Creditors The assessee, an individual conducting business, filed returns for AY 2016-17, disclosing total income. During scrutiny, the AO noted loans from various parties. The assessee provided confirmation letters, bank statements, and ITR acknowledgments to prove the loans were received through banking channels from known parties. The AO did not dispute the identity of creditors or genuineness of transactions but questioned creditworthiness, leading to additions under section 68. Issue 2: Creditworthiness of Parties The AO rejected the assessee's explanation, adding the loan amounts as unexplained credits. The Ld.CIT(A) found the assessee had fulfilled the burden under section 68 by proving identity, genuineness, and creditworthiness for most loans. However, for one loan from M/s.Rich Gold Hardware, the Ld.CIT(A) upheld the addition due to insufficient evidence on creditworthiness beyond confirmation letters. Issue 3: Legal Principles and Precedents The Revenue challenged the Ld.CIT(A)'s decision, arguing that creditworthiness was not adequately proven. The Ld.AR supported the Ld.CIT(A), emphasizing that income declared by creditors does not solely determine loan amounts. The ITAT Chennai analyzed the evidence, emphasizing that once the assessee proves identity, genuineness, and creditworthiness, the onus shifts to the AO to disprove. Citing legal precedents, including the cases of Lovely Exports Private Limited and Steller Investment Ltd., the ITAT Chennai concluded that the AO erred in making additions based solely on creditors' declared income. Conclusion The ITAT Chennai upheld the Ld.CIT(A)'s decision, dismissing the Revenue's appeal. The ITAT Chennai found that the assessee had adequately proven identity, genuineness, and creditworthiness for most loans, shifting the burden to the AO to provide contrary evidence. The ITAT Chennai emphasized that the AO's focus on creditors' income declarations was insufficient to justify the additions under section 68. The ITAT Chennai highlighted that loans from known parties, supported by proper documentation, should not be treated as unexplained credits solely based on income declarations.
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